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Dealing with Tips

October 14th

If you happen to work in the entertainment or food industry, you are likely familiar with how vital tips can be to the livelihood of the individuals that work in these environments.  But how can employers properly record tips in order to avoid tax debt? Generally speaking, tips that an employee receives from a customer are subject to withholding. Employees are required to report cash tips to their employers by the 10th of every month that the tips are received.

Tips on Tips

If the amount of the tips received in any given month is less than $20, there are no reports required from the employer. When an employee reports tips on their tax returns, they must use Form 4070, which is known as the Employee’s Report of Tips to Employer. When this form is submitted to the employer, it must be signed by the employee and also noted with the following information:

  •  The employee’s name, address, and Social Security number
  •  The name and address of the employer
  •  The month or period that the report covers
  •  The total tips received during the month or period in question.

For more information regarding the reporting of tips and the importance of tips in tax records, be sure to check out the Employer’s Tax Guide, a free publication that can be found at the IRS website at www.IRS.gov.  You can also consider consulting a local tax attorney or tax lawyer for more information.  Tips are a vital part of their income for many workers, and this means that these wages need to be carefully courted for the purposes of taxes. Don’t risk getting stuck with IRS penalties—make sure to keep track of your tips!


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